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Question 17

Q: One of the exceptions to 10% additional tax on early distribution applies to distributions from a qualified governmental defined benefit plan for qualified public safety employees who separate from service on or after reaching age 50.

While amounts distributed from a 457(b) plan generally are not subject to the additional 10% tax on early distributions, amounts previously rolled over to a 457(b) plan from a 401(a) plan, a 403(b) arrangement or an IRA are subject to the tax.

With that in mind, what if a public safety employee rolled his distribution from a governmental DB plan into a 457(b) plan and subsequently took a distribution of these dollars — would this distribution be subject to the 10% additional tax?

A: Yes — if there is not another exception to the 10% penalty tax, the penalty tax still would apply after the rollover. Assets rolled into governmental 457(b) plans are required, under the regulations, to be segregated and separately tracked for the purposes of the penalty tax.